Impacts on Poverty of Removing Fuel Import Subsidies in Nigeria

36 Pages Posted: 20 Apr 2016

See all articles by Khalid Siddig

Khalid Siddig

University of Khartoum; Humboldt University of Berlin - Faculty of Life Sciences Thaer-Institute

Peter Minor

ImpactECON, LLC

Harald Grethe

University of Hohenheim - Development Theory and Agricultural Policy

Angel Aguiar

Purdue University - Department of Agricultural Economics

Terrie Walmsley

ImpactECON, LLC; University of Southern California - Center for Risk and Economic Analysis of Terrorism Events (CREATE)

Date Written: July 24, 2015

Abstract

The petroleum sector contributes substantially to the Nigerian economy; however, the potential benefits are diminished because of the existence of significant subsidies on imports of petroleum products. Subsidies on imported petroleum products are considered to be an important instrument for keeping fuel prices, and hence the cost of living, low. The costs of these subsidies, however, have risen dramatically in recent years along with increased volatility in world petroleum and petroleum product prices and increased illegal exportation of subsidized petroleum products into neighboring countries. Removing the subsidy on fuel is one of the most contentious socioeconomic policy issues in Nigeria today. In this paper, an economy-wide framework is used to identify the impact of removing the fuel subsidy on the Nigerian economy and investigate how alternative policies might be used to meet socioeconomic objectives related to fuel subsidies. The results show that although a reduction in the subsidy generally results in an increase in Nigeria?s gross domestic product, it can have a detrimental impact on household income, and in particular on poor households. Accompanying the subsidy reduction with income transfers aimed at poor households or domestic production of petroleum products can alleviate the negative impacts on household income.

Keywords: Consumption, Energy and Environment, Inequality, Energy and Mining, Private Sector Economics, Energy Demand, Private Sector Development Law, Marketing, Fiscal & Monetary Policy, Global Environment

Suggested Citation

Siddig, Khalid and Minor, Peter and Grethe, Harald and Aguiar, Angel and Walmsley, Terrie, Impacts on Poverty of Removing Fuel Import Subsidies in Nigeria (July 24, 2015). World Bank Policy Research Working Paper No. 7376, Available at SSRN: https://ssrn.com/abstract=2635707

Khalid Siddig (Contact Author)

University of Khartoum ( email )

Shumbat
Khartoum
Khartoum, Khartoum 13314
Sudan

Humboldt University of Berlin - Faculty of Life Sciences Thaer-Institute ( email )

Unter den Linden 6
Berlin, 10099
Germany

Peter Minor

ImpactECON, LLC ( email )

1942 Broadway
Suite 314
Boulder, CO 80302
United States

Harald Grethe

University of Hohenheim - Development Theory and Agricultural Policy ( email )

United States

Angel Aguiar

Purdue University - Department of Agricultural Economics ( email )

West Lafayette, IN 47907-1145
United States

Terrie Walmsley

ImpactECON, LLC ( email )

1942 Broadway
Suite 314
Boulder, CO 80302
United States

University of Southern California - Center for Risk and Economic Analysis of Terrorism Events (CREATE) ( email )

United States

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